“This report reflects an important milestone in the recent housing cycle, with preliminary April data showing the first year-over-year increase in house prices marketwide,” said professor Karl Guntermann, the Fred E. Taylor Professor of Real Estate, who authored the new report with research associate Adam Nowak. “Also, prices for lower-end houses and the foreclosure segment of the market, which turned positive in March, continued to increase on an annual basis.”

The Arizona State University – Repeat Sales Index (ASU-RSI) measures changes in average Phoenix-area home prices from year to year. The latest index finally reveals an estimated 1-percent increase from April 2009 to April 2010. This follows a 13-percent fall from December 2008 to December 2009, a 9-percent drop from January 2009 to January 2010, a 7-percent decline from February to February, and an estimated 3-percent drop from March to March.

“Prices may continue to increase slowly for the next few months, but price stability, rather than increases, is likely for the rest of the year,” Guntermann said. “For homeowners with higher-priced houses, achieving price stability would be an important milestone after years of price declines.”

Guntermann says higher-priced homes still didn’t show a significant slowdown in the rate of price declines until this April. They remain just out of positive territory, with an estimated 3-percent drop from April 2009 to April 2010. Also, despite positive momentum marketwide, the cities of Glendale and Peoria lag behind others with prices still down more than 50 percent from their peak in 2006.

The overall median price for Phoenix-area single-family homes in the February index was $127,000. It’s projected to be $135,000 for April, which would put the market back at the same level as December of 2008.

The townhouse/condo market remains rough. The new index shows a price drop of 26 percent from February 2009 to February 2010. Preliminary numbers for March and April anticipate 19-percent annual declines. The median townhome/condo price in February was $86,400, with forecasted drops to $83,500 in March and $81,000 in April.

The ASU-RSI is based on repeat sales, the most reliable way to estimate price changes in the housing market. Repeat sales compare the prices of a single property against itself at different points in time, instead of comparing different homes and buildings with different quality factors.

Source: W. P. Carey School of Business at Arizona State University, Karl Guntermann, Adam Nowak, 5/27/2010

At the national level, the official timing of business cycle peaks and troughs is the province of the National Bureau of Economic Research (NBER). The NBER emphasizes that the timing of recession is based on “various measures of broad activity” including GDP, income, employment, sales and industrial production. To date, the NBER has reaffirmed the national start date of the recession as December 2007, but believes identification of a trough in activity would be “premature” (as of April 12, 2010).

http://www.nber.org/cycles/april2010.html

One issue likely affecting the NBER decision is that labor markets have still not returned to consistent growth. In March, 162,000 nonfarm jobs were added. However, U.S. employment in the whole first quarter was up only by a meager 7,000 jobs over the last quarter of 2009. Meanwhile, some 15 million workers are unemployed and the national unemployment rate has been stuck at 9.7 percent for the first three months of the year.

Here in Arizona, non-farm payroll jobs were down by 3,300 again in March after rising month-to- month in three of the previous five months (based on seasonally adjusted data). However, unlike national employment, first quarter Arizona jobs were down by 2,300 compared to the final quarter of 2009 (seasonally adjusted data).

What patterns do we need to see in job growth and overall employment data to say that “the recession is over in Arizona?”

Arizona employment bottoms out

To start, we must recognize that a recession is a contraction in economic activity. If we are to focus on employment as the primary indicator of Arizona recession, then the end of the recession is synonymous with an end to job losses. There must be what is often referred to as a “bottoming out” of employment.

Chart 1 shows monthly Arizona employment levels from 2005 through March of this year. The chart uses seasonally adjusted data from the U.S. Bureau of Labor Statistics, to allow for month-to-month comparisons. The employment peak of the current cycle was in August of 2007, at an all-time high record of 2,680,300 jobs. The low point of the cycle was reached in September of 2009, at employment of 2,384,300, a peak-to-trough loss of 296,000 Arizona jobs (seasonally adjusted) or a decrease of 11 percent.

For the six months following the September low point, employment has “bumped along the bottom” of the cycle, as shown in the chart. March 2010 (seasonally adjusted) employment was 2,386,600, down by 3,300 jobs from February, but February was up by 3,500 jobs from January.

Based on observation of the seasonally adjusted monthly employment data, there is support for the view that Arizona employment bottomed out at the end of 2009.

Third year of job losses in 2010?

But have we seen the end of the recession? Maybe not, if we are going to evaluate this current cycle in a longer term context, based on annual data.

It is quite possible that, for all of 2010, Arizona employment may actually be lower than average annual employment in 2009. Even if employment in 2010 grows in every month, it may not increase enough to yield an annual average level greater than last year. If so, 2010 will be the third consecutive year of job losses for the state, and analysts looking back at Arizona’s economic performance will categorize 2010 as a recession year, a year when the economy contracted compared to the year before.

The current year-over-year comparison is shown in Chart 2. Arizona employment in March was down by 3.2 percent compared to March of last year. While this is an improvement over the January figure (when employment was down by 4.9 percent compared to the prior January), the evidence is clear that, so far this year, the economy is weaker now than at this time in 2009. By that measure, the recession continues.

In order to grow even 1 percent over 2009, Arizona must add 24,000 jobs overall in 2010. But so far this year, Arizona average employment is down by 98,000 jobs from the same period last year.

As of this month, the consensus Arizona Blue Chip forecast is that employment will be down by 0.1 percent in 2010, basically a “no growth” outlook. (http://wpcarey.asu.edu/bluechip/western/arizona.cfm)

But there are three panelists who project that Arizona employment will be down by 2.0 percent or more in 2010. If these forecasters are correct, Arizona labor markets in 2010 will lose another 48,500 jobs.

The somewhat counterintuitive conclusion from review of charts 1 and 2 is that it is likely that Arizona employment stopped contracting at the end of 2009, but will still register job losses for the year as a whole. That is, it is very possible that Arizona economic historians will record the current recession as extending for three consecutive years of jobs losses (2008, 2009, and 2010), an unprecedented downturn for a state known for strong employment gains.

Full recovery will take time

Finally, while monthly job losses have bottomed out and year-over-year losses have slowed, full recovery for Arizona lies sometime in the future. As of March, employment is at 89 percent of the August 2007 peak (Chart 3).

As recently as 2005 and 2006, Arizona has added as many as 125,000 jobs per year. But in each of those years, construction accounted for about one out of every five new jobs created. Construction is expected to lose jobs yet again in 2010.

Further, it is unlikely that the economy can move forward without the key driver of renewed population growth. The current Arizona Blue Chip forecast calls for 1.2 percent population growth in 2010 and 1.5 percent in 2011. The consensus forecast for employment growth in 2011 is 1.8 percent. Stronger job growth and full recovery won’t be seen until 2012, 2013, or beyond.

Source: Lee McPheters, W. P. Carey School of Business at Arizona State University, 5/12/2010

Podcast link: http://knowledge.wpcarey.asu.edu/article.cfm?articleid=1890

Source: Source: W. P. Carey School of Business at Arizona State University, 5/12/2010

The median price has gone up almost 5.5 percent from $136,500 in January to $144,000 in April. Still, Associate Professor of Real Estate Jay Butler, who authored the new report, points to contradictions in the market.

“Several factors contributed to this increase, including the normal seasonal price hike that happens every spring and also less discounted prices being offered on foreclosed properties for resale,” Butler says. “On the positive side, the recent improvement in home prices does provide evidence of short-term appreciation, and it has also further enhanced the interest of investors in the local housing market.”

But, Butler adds, bargain hunters, short sales and the high number of foreclosures are still driving the market overall.

“Even though foreclosures as a share of recorded activity in the Phoenix-area housing market declined from 40 percent in March to 34 percent in April, this was still one of the highest levels of foreclosure activity in the last year,” he says. “The surge could be related to the end of foreclosure moratoriums put in place in late 2009 and the still-weak economy.”

Almost 3,500 homes were foreclosed on in April, way up from about 2,500 foreclosures last April. However, it is an improvement from March’s nearly 4,400 foreclosures. Foreclosures combined with the resales of previously foreclosed properties still account for 60 percent of the Valley’s single-family home market activity.

The number of homes resold in the Phoenix market in April remained relatively high at about 6,800. In March, about 6,500 homes were sold. Last April, just over 6,600 were sold.

In the townhouse/condominium market, foreclosure levels are much higher than last year. About 1,100 townhomes and condos were foreclosed on each month in March and April of this year. Last April, less than 700 townhomes and condos went into foreclosure. The median townhome/condo price has plummeted from $116,500 last April to just $95,000 this April.

Source: W. P. Carey School of Business at Arizona State University, 5/17/2010

“The rate of decline has been slowing for several months, and if the present trend continues, prices will level off later this spring,” says Professor Karl Guntermann, the Fred E. Taylor Professor of Real Estate, who authored the new report with Research Associate Adam Nowak.

Guntermann’s Arizona State University-Repeat Sales Index (ASU-RSI) measures changes in average Phoenix-area home prices from year to year. The latest index shows Valley home prices dropped about 13 percent from December 2008 to December 2009. That’s less than the 17-percent decline from November to November and the 20-percent fall from October to October. Preliminary estimates indicate the slowdown continued with annual rates of decline at 9 percent for January and 7 percent for February.

The lower end of the market has seen the most dramatic improvement. Since October, the annual drop in prices has gone way down from almost 30 percent to just 5 percent. Foreclosed homes are also faring better than they have in past months.

“The prices of foreclosed homes declined at a 5-percent rate from December 2008 to December 2009, but the preliminary decline for both January and February was only 2 percent,” says Guntermann. “These numbers suggest the foreclosure segment of the housing market is very close to the bottom, at least in terms of the rate of price decline.”

The median price of homes in the December index was $132,500. That’s down from $135,000 in November. Preliminary estimates for January and February are also lower at $125,000 and $127,000, respectively. However, Guntermann believes this may reflect only a seasonal slowdown in the housing market, since the overall index trend is positive, and the median just represents the middle of the market.

The total decline of Valley home prices from the mid-2006 peak is 47 percent. Glendale and Peoria are the only cities that still have total declines of more than 50 percent since the peak.

In the townhouse/condo market, the December 2008-to-December 2009 index shows a 26-percent drop in prices, and it’s expected to get worse with estimated declines of 28 percent for January to January and 30 percent for February to February. The median price of townhouse/condo units in December was $84,600.

The ASU-RSI is based on repeat sales, the most reliable way to estimate price changes in the housing market. Repeat sales compare the prices of a single house against itself at different points in time, instead of comparing different homes with different quality factors.

Source: W. P. Carey School of Business at Arizona State University, 3/25/2010

Increases in jobs, credit, and affordable homes will overcome impediments such as rising interest rates, and the expiration of the Federal stimulus program to push the housing market toward recovery, says Dean Maki, chief U.S. economist for Barclays Capital.

“I would bet even odds that we’re at a bottom and that we’re going to see improvement in the coming months,” says Karl Case, co-creator of the S&P/Case-Shiller Home Price Index and a professor of economics at Wellesley College.

“The underlying trend is turning positive,” says Bruce Kasman, chief economist at JPMorgan Chase & Co.

Source: Bloomberg, Kathleen M. Howley and Rich Miller (03/15/2010)

The process works like this: When a borrower stops paying the mortgage, banks often delay taking the property into foreclosure. When banks delay, neither the former home owner nor the bank is paying association fees.

To remedy this, the association files its own foreclosure notice, taking over the title. The association can’t sell the property because of the bank’s lien on it. So the association goes to court, renounces the property and asks the judge to give the title back to the bank.

When the judge does so, the bank has to pay the fees. Experts say this technique is becoming very popular in parts of the country where there are a lot of foreclosed condos.

Source: Miami Herald, Rachael Lee Coleman (03/07/2010)

In October and November, when the market was feeling the effect of the tax credit, 26 percent of sellers cut their asking prices.

“Better pricing is leading to less time on the market, less price reduction, and in a lot of markets we’re starting to see bidding wars on lower end properties,” said Ken Shuman, spokesperson for Trulia.

Trulia calculates that these U.S. cities experienced the biggest decline in price reductions from Feb. 1, 2010 to March 1, 2010:

• Charlotte, N.C.
• Colorado Springs, Colo.
• Houston
• Raleigh, N.C.
• Jacksonville, Fla.
• Albuquerque, N.M.
• Tucson, AZ
• Omaha, Neb.
• San Antonio, Texas

Source: Trulia.com (03/09/2010)

They find it particularly galling that tax bills continue to rise as home values decline, a common phenomenon. A recent survey by the National League of Cities reported that 25 percent of municipalities raised property taxes in 2009 to replace declining revenues.

In New Jersey and New York, voters threw incumbents they viewed as tax-and-spend officials out of office. In Michigan, there have been so many tax appeals that the tax court has 24,000 pending cases.

Some observers like Ted Lanzaro, a certified public accountant who handles taxes for clients in Connecticut, predict that people are running out of savings and some are simply going to stop paying taxes.

Source: The Wall Street Journal, M.P. McQueen (03/06/2010)

The Arizona State University-Repeat Sales Index (ASU-RSI) measures changes in average Phoenix-area home prices from year to year. The index has been declining for 33 months in a row, but the rate of the drops has been getting slower and slower.

The latest report shows single-family home prices fell 17 percent from November 2008 to November 2009. That’s less than the 20-percent dip from October 2008 to October 2009 and the 23-percent drop from September to September. Preliminary estimates for December and January are 13 percent and 9 percent, respectively.

“If the present trend continues, prices will level off later this spring,” said professor Karl Guntermann, the Fred E. Taylor Professor of Real Estate, who authored the report along with research associate Adam Nowak. “Prices are currently down 47 percent from the peak in mid-2006.”

Lower-priced homes have generally dropped in value much faster than higher-priced homes. For example, the index shows a 23-percent decline in the average price of lower-end homes from November 2008 to November 2009, with only a 15-percent drop for more expensive homes.

The median single-family home price for November was $135,000, up from $131,000 in October. However, preliminary numbers show another fall to $132,500 in December and $125,000 in January. The foreclosure segment of the market seems to be stabilizing fastest, with non-foreclosure homes now prompting the dips.

“The decline in foreclosure house prices was driven primarily by mortgage-related issues, but the continuing decline of non-foreclosure prices has more to do with weak economic conditions, especially in the Phoenix area, and the difficulty buyers face in qualifying for mortgage loans,” Guntermann said.

The prices of townhomes and condos keep dropping, though it appears the most rapid declines happened last summer. Average prices went down 28 percent from November 2008 to November 2009. That’s slightly better than the 31-percent drop from October to October. The median price of townhouse/condo units was $89,000 in November.

Guntermann adds some unfortunate news for two specific areas of the Valley, where prices are still plummeting.

“While prices in most cities may stop declining later this spring,” he said, “at this time, there is no way to estimate when the declines will end for Scottsdale/Paradise Valley and Sun City/Sun City West.”

The ASU-RSI is based on repeat sales, the most reliable way to estimate price changes in the housing market. Repeat sales compare the prices of a single house against itself at different points in time, instead of comparing different homes with different quality factors.

Source: W. P. Carey School of Business at Arizona State University, 2/25/2010